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The  Powder  Trust,  1872-1912 


THESIS 

PRESENTED  TO  THE  FACULTY  OF  THE  GRADUATE  SCHOOL  OF  THE  UNIVERSITY 
OF  PENNSYLVANIA  IN  PARTIAL  FULFILLMENT  OF  THE  REQUIRE- 
MENTS FOR  THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 


BY 


WILLIAM  S.  STEVENS 


PHILADELPHIA,  PENNSYLVANIA 
1912 


THE   POWDER  TRUST,   1872-1912 

SUMMARY 

Introduction,  444.  —  Period  I.  Organization  of  the  first  combination 
in  the  explosives  trade,  445.  —  The  Council,  446.  —  Compacts  with  the 
California  Powder  Works,  447.  —  Amendment  of  the  Articles  of  Asso- 
ciation, 448.  —  The  Agreement  of  1886,  450.  —  Fundamental  Agreement 
of  1889,  452.  —  Period  II.  Competition  between  1890  and  1894,  454.  — 
Revision  of  the  Fundamental  Agreement,  456.  —  The  "  Understanding  " 
of  1896,  456.  —  Advance  in  the  prices  of  powder  subsequent  to  1896, 
457.  —  Contests  against  new  competitors,  459.  —  Miscellaneous  agree- 
ments looking  to  more  complete  control,  460.  —  Early  combination 
in  the  Dynamite  Trade,  462.  —  Acquisitions  of  the  Eastern  Dynamite 
Company,  465.  —  Origin  of  the  European  Agreement,  465.  —  Its  terms, 
466.  —  The  Mexican  Agreement,  467.  —  Period  III.  The  organization 
of  E.  I.  du  Pont  de  Nemours  and  Company,  Delaware  Corporation 
of  1902,  470.  —  Relation  of  E.  I.  du  Pont  de  Nemours  and  Company 
and  Laflin  and  Rand  to  subsidiaries,  471.  —  Option  upon  Laflin  and 
Rand,  472.  —  The  Delaware  Securities  Company,  472.  —  The  Delaware 
Investment  Company,  473.  —  Relations  of  the  Companies  outside  of 
the  combination,  474.  —  E.  I.  du  Pont  de  Nemours  and  Company  of 
Pennsylvania,  475.  —  The  California  Investment  Company,  476.  — 
International  Smokeless  Powder  and  Chemical  Company,  477.  —  Per- 
centage of  control  exercised,  478.  —  Prices,  478.  —  Dissolution  of  sub- 
sidiaries, 479.  —  Decision  of  the  Circuit  Court,  480. 

AMONG  the  numerous  combinations  in  restraint 
of  trade  that  have  been  attacked  in  recent  years  by  the 
government  under  the  Sherman  Act,  the  so-called 
"  Powder  Trust "  is  probably  the  most  interesting; 
and  this  for  several  reasons.  In  the  first  place  the 
Powder  Trust  has  had  perhaps  the  longest  continuous 
existence  of  any  combination,  the  Standard  Oil  Com- 
pany alone  excepted.  Secondly,  the  combination 
has  demonstrated  that,  contrary  to  the  general  ex- 
perience, it  is  possible  for  a  pool  to  maintain  itself 
through  a  long  period  of  years  without  either  breaking 


254946 


"2    '        '  'QUARTERLY  JOURNAL  OF  ECONOMICS 

down  or  to  any  great  extent  losing  its  effectiveness. 
Finally,  peculiar  interest  attaches  to  the  Powder 
Trust  in  its  later  history  because  of  the  unique  scheme 
employed  by  E.  I.  du  Pont  de  Nemours  and  Company, 
to  be  considered  in  the  latter  part  of  this  article,  for 
dissolving  subsidiaries. 

The  history  of  the  Powder  Trust  falls  naturally 
into  three  periods,  as  follows :  — 

I.   From  April   23,    1872,  to   July   2,    1890,  the 
date  of  the  passage  of  the  Sherman  Act. 

II.  From   July  2,   1890,   to   March,    1902,   when 

Thomas,  Pierre,  and  Alfred  du  Pont  in- 
corporated the  E.  I.  du  Pont  de  Nemours 
and  Company,  the  Delaware  corporation 
of  1902. 

III.  From  the  incorporation  of  March,   1902,  to 

the  present  day. 

PERIOD  I 

At  10  o'clock  on  April  23,  1872,  certain  persons 
representing  six  gunpowder  manufacturers l  held  a 
meeting  in  New  York  City  at  the  office  of  F.  L. 
Kneeland,  70  Wall  Street.  A  seventh  concern,  tho 
not  represented,  expressed  in  a  letter  its  entire  agree- 
ment with  the  purposes  and  objects  of  the  assem- 
blage.2 The  secretary  of  the  meeting,  Mr.  A.  E. 
Douglass,  representing  the  Hazard  Powder  Company, 
read  a  proposed  scheme  of  association,  which  was 
amended  in  some  respects  to  conform  to  the  opinions 

1  The  concerns  represented  were  as  follows:  E.  I.  du  Pont  de  Nemoura  and  Co.,  th« 
Laflin  and  Rand  Powder  Co.,  the  Oriental  Powder  Mills,  the  American  Powder  Co., 
Miami  Powder  Co.,  and  the  Hazard  Powder  Co.  All  citations  are  from  the  Testimony, 
Exhibits,  Briefs,  and  documents  in  the  suit  of  the  United  States  of  America  r.  E.  I. 
du  Pont  de  Nemours  and  Co.  et.  al.  U.  S.  C.  C.,  for  the  District  of  Delaware,  No.  280. 
In  Equity. 

»  This  seventh  concern  was  the  Austin  Powder  Company,  a  corporation  of  Ohio. 


THE  POWDER   TRUST,  1872-1912  3 

of  those  present  and  was  then  ordered  to  be  printed 
and  distributed  for  further  consideration  and  action 
to  the  participating  firms  and  companies.  It  was 
resolved  that  a  committee  of  four  should  be  appointed 
by  the  chairman  who  should  arrange  a  price  schedule 
for  the  prominent  markets  of  the  United  States  and 
report  at  the  next  meeting.  l 

On  April  29th,  at  an  adjourned  meeting,  the  com- 
mittee of  four  reported  back  a  price  schedule  which 
was  unanimously  adopted  as  were  also,  substantially 
unchanged,  the  articles  drafted  at  the  prior  session. 
The  name  of  the  pool  was  to  be  the  "  Gunpowder 
Trade  Association  of  the  United  States. "  Its  declared 
purpose  was  to  ensure  "  an  equitable  adjustment  of 
prices  and  terms  for  sales  of  powder  throughout  the 
United  States."  2  Tho  seven  concerns  composed  its 
original  membership,  it  was  provided  that  any  manu- 
facturer might  signify  in  writing  to  the  President 
his  desire  to  become  a  member  and  might  be  admitted 
to  the  combination.  Representation  was  based  largely 
upon  the  size  of  the  concern.  E.  I.  du  Pont  de  Nemours 
and  Company,  and  the  Hazard  and  the  Laflin  and 
Rand  Powder  Companies  were  allotted  ten  votes 
each.  The  Oriental  Powder  Mills  received  six  votes 
and  each  of  the  other  concerns  four  votes.  The 
Association  was  to  fix  and  regulate  the  minimum 
prices  for  powder,  for  which  purpose,  presumably, 
it  was  provided  that  the  association  should  meet 
quarterly. 

A  "  Council  "  of  five  persons  was  to  be  elected  by 
the  associates.  It  was  to  meet  weekly  or  at  the  call 
of  the  chairman,  and  three  members  were  to  constitute 

1  Confidential  Minutes  of  the  Meeting  of  the  Manufacturers  of  Gunpowder,  April 
23,  1872.  Gov't  Exhibit  No.  96,  Pet.  Rec.  Exhibits,  vol.  i,  pp.  471-472. 

»  Articles  of  Association,  Gov't  Exhibit  No.  96-b,  Pet.  Rec.  Exhibits,  vol.  i,  pp. 
476-477. 


4  QUARTERLY  JOURNAL  OF  ECONOMICS 

a  quorum.  To  it  all  questions  of  price  discrepancies 
and  discriminations  were  to  be  referred,  as  well  as  all 
complaints  of  infractions  of  the  agreement.  The 
"  Council  "  was  to  give  a  final  adjudication  upon  these 
questions,  by  a  majority  vote,  subject  to  the  right 
of  an  aggrieved  member  to  appeal  to  the  next  quarterly 
meeting  of  the  association.1  The  object  of  the  Council, 
as  alleged  by  the  government  in  its  Brief  was  solely 
to  secure  the  maintenance  of  the  price  schedules 
established  by  the  Association.2 

At  the  time  of  the  formation  of  the  Association 
there  was  in  existence  and  doing  business,  in  the 
western  part  of  the  United  States,  a  company  known 
as  the  California  Powder  Works.  In  1875  the  com- 
bination began  a  campaign  of  under-selling  for  the 
purpose  of  eliminating  that  concern  from  the  field. 
The  outcome  of  the  contest  was  the  sale  by  the  Cali- 
fornia Powder  Works  of  43  J  per  cent  of  its  stock  to 
E.  I.  du  Pont  de  Nemours  and  Company.3  In  the 
same  year  an  agreement  was  entered  into  between 
the  Association  and  the  western  concern.  Rules 
were  adopted  by  which  the  prices  of  powder  in  the 
states  and  territories  of  Utah,  Wyoming,  Montana, 
Colorado,  and  New  Mexico  (territory  known  as  the 
"  Neutral  Belt  ")  were  to  be  named  by  the  "  Represen- 
tative Agents  "  of  the  Association,  but  not  to  be  less 
than  certain  minimum  prices  fixed  by  that  Association. 
Members  engaged  not  to  sell  below  prices  and  terms 
thus  established,  upon  penalty  of  one  dollar  per  keg 
for  such  sales,  payable  in  gold.4  In  1880  this  agreement 
was  renewed  for  a  term  of  five  years.  The  latter 
compact  provided  that  the  Association  should  neither 

*  Op.  cit.,  Articles  of  Association,  p.  478. 

«  Brief  for  the  United  States,  vol.  2,  p.  8. 

»  Cf.  Amended  Pet.,  Pleadings,  pp.  18-19. 

«  Gov't  Exhibit  No.  96-t  Pet.  Rec.  Exhibits,  vol.  i,  pp.  521  ff. 


THE  POWDER   TRUST,  1872-1912  5 

sell  in  nor  ship  into  the  states  of  California,  Oregon, 
and  Nevada  and  the  territories  of  Arizona,  Idaho, 
Washington,  and  Alaska,  British  possessions  or  colonies 
west  of  the  Rockies.1  The  Neutral  Belt  was  preserved 
subject  to  the  same  kind  of  an  agreement  in  regard 
to  prices  as  was  utilized  in  the  arrangement  of  1875. 
The  California  Powder  Works  upon  its  part  agreed 
to  refrain  from  any  shipments  into  the  territory  east 
of  the  Neutral  Belt,  which  was  to  belong  exclusively 
to  the  Association.2 

In  May,  1876,  an  agreement  was  secured  from  the 
Sycamore  Powder  Company  to  maintain  the  rate 
schedules  of  the  Association.3  Presumably  this  was 
not  a  difficult  task,  for  as  early  as  1873  the  du  Pont 
interests  had  purchased  500  shares  hi  this  concern.4 
About  the  same  tune  another  agreement  was  made, 
this  time  with  the  Lake  Superior  Powder  Company, 
whereby  that  concern  agreed  to  confine  its  sales  to  a 
certain  definite  territory.  The  Association  had  earlier 
agreed  that  such  of  its  members  as  were  not  at  that 
time  in  enjoyment  of  the  Lake  Superior  trade  would 
not  attempt  to  enter  that  district.5 

Prior  to  this,  in  1876,  the  articles  of  association 
were  so  amended  that,  in  case  of  an  infraction  of 

1  Except  that  du  Pont  de  Nemours,  the  Hazard,  and  Laflin  and  Rand  Companies 
were  given  rights  to  make  shipments  up  to  certain  amounts.  Gov't  Exhibit  No.  4, 
Pet.  Rec.  Exhibits,  vol.  i,  p.  45. 

*  Ibid.,  Agreement,  pp.  49  ff. 

8  Gov't  Exhibit  No.  96-z,  Pet.  Rec.  Exhibits,  vol.  i,  p.  534. 

*  Testimony  of  E.  C.  Lewis,  Def.  Rec.  Testimony,  vol.  i,  pp.  403-409.     The  re- 
mainder of  the  stock  was  purchased  by  the  same  parties  a  few  years  later. 

5  Compendium  of  Rules,  June  1,  1881.  Gov't  Exhibit  No.  97,  Pet.  Rec.  Exhibits, 
vol.  ii,  Sees.  37-38,  p.  834.  About  1877  or  1878  a  majority  of  the  stock  of  the  Lake 
Superior  Powder  Company  was  acquired  for  cash  by  the  du  Fonts  and  other  interests. 
Cf.  Testimony  of  J.  G.  Reynolds,  Def.  Rec.  vol.  ii,  pp.  589-590.  Amended  Pet.  of 
Gov't  asserts  that  both  of  these  concerns  were  forced  into  the  agreements  by  ruinous 
competition.  Cf.  Amended  Pet.  Pleadings,  p.  23.  Assertions  are  rebutted  in  defen- 
dant's testimony.  Def.  Rec.  Testimony  of  E.  C.  Lewis,  vol.  i,  pp.  412-413,  testimony 
of  J.  G.  Reynolds,  ibid.,  vol.  ii,  p.  590. 


6  QUARTERLY  JOURNAL  OF  ECONOMICS 

prices,  charges  thereof  should  be  preferred  by  a  written 
notice  twenty  days  previous  to  the  quarterly  meeting. 
The  notice  was  required  to  state  definitely  the  place 
at  which  the  goods  in  which  the  cut  was  claimed  to 
have  been  made  were  sold  and  delivered.  At  the 
quarterly  meeting  the  associates,  each  having  one  vote, 
would  hear  the  evidence  and  determine  its  value. 
Their  decision  was  to  be  final  and  the  penalty  was  to 
be  paid  in  cash  to  the  Association.  This,  of  course, 
eliminated  the  necessity  of  the  council  of  five  members, 
originally  provided  for  in  the  agreement  of  1872,  and 
that  paragraph  was  in  consequence  repealed  on  August 
2,  1876.1  The  various  "  triers "  appointed  under 
the  new  provision,  to  secure  the  maintenance  of  prices 
soon  found  plenty  of  work  for  them  to  perform.  In 
the  first  place  three  new  independent  companies 
entered  the  gunpowder  trade  between  1878  and  1881 
in  competition  with  the  Association.  The  result 
was  a  decided  and  general  demoralization  of  prices 
and  the  conditions  of  the  trade.2  These  circumstances 
subjected  the  Association  to  the  mtfst  severe  test  of 
its  career.  Between  1881  and  1883  the  minutes  show 
that  230  cases  of  violations  of  price  agreements  were 
tried  by  the  Association.3  There  is  evidence  to  prove 
that  it  was  a  practical  impossibility  to  maintain  the 
schedule  of  prices,  and  that  each  member  looked  out 
for  his  own  interest. 

There  is  also  abundant  testimony  to  show  that  a 
part  of  this  demoralization  in  prices  was  caused  by  a 
campaign  of  under-selling  inaugurated  against  the 
above  mentioned  independent  companies  hi  the  period 

i  Amended  Articles  of  Ass'n,  Gov't  Exhibit  No.  96-ee.  Pet.  Rec.  vol.  i,  pp.  558- 
561.  For  repeal  of  the  section  regarding  the  Council  see  Gov't  Exhibit  No.  96-bb. 
Pet.  Rec.  Exhibits,  vol.  i,  pp.  546-547. 

«  Of.  Ans.  of  the  King  Powder  Co.,  Pleadings,  p.  410.  Also  Testimony  of  Gershon 
M.  Peters,  Def.  Rec.  Testimony,  vol.  ii,  pp.  689-692. 

8  Cf.  Brief,  vol.  2,  p.  14. 


THE  POWDER   TRUST,  1872-1912  1 

1880-85.  For  example,  in  the  case  of  the  King's 
Great  Western  Powder  Company,  the  Hazard  Powder 
Company  gave  instructions  to  its  agents  to  cut  the 
price  with  the  guarantee  to  each  customer  that  it 
should  be  ten  cents  lower  than  any  price  that  the 
King's  Company  would  make  them.  Prices  on  rifle 
powder  in  Cincinnati,  where  the  King's  Company 
was  located,  went  down  to  $2.25  per  keg,  altho  in  the 
New  England  and  other  states  it  was  $6.25.  Blasting 
powder  declined  in  price  from  $2.75  or  $2.85  to  80  cents 
per  keg  in  the  same  locality.1  Substantially  the  same 
methods  were  employed  against  both  the  Ohio  Powder 
Company  and  the  -Marcellus  Powder  Company,2 
the  other  two  of  the  independents,  with  the  result 
that  all  three  were  forced  to  yield  to  the  combination,3 
and  became  parties  to  a  new  combination  on  August 
23,  1886,  together  with  the  concerns  already  in  the 
Association. 

The  purpose  of  the  agreement  of  1886  was:  "  regu- 
lating in  a  convenient  and  desirable  manner  the  business 
of  the  parties  .  .  .  including  the  regulation  of  the 
prices  at  which  such  powder  shall  be  sold;  for  the 
purpose  of  avoiding  unnecessary  loss  in  the  sale  and 
disposition  of  such  powder  by  ill  regulated  or  un- 
authorized competition  and  under-bidding  by  the 
agents  of  the  parties  hereto  ".  .  .  .  The  terms  of 
the  agreement  provided  that  the  nine  parties  to  the 

»  Testimony  of  R.  S.  Waddell,  Brief  for  the  United  States,  vol.  2,  pp.  16-20.  It  is 
only  fair  to  say  that  it  was  endeavored  to  rebut  the  testimony  of  Waddell  in  regard  to 
the  methods  of  competition  employed  against  these  independent  companies,  and  to  so 
far  as  possible,  discredit  it.  Cf .  Testimony  of  Gershon  M.  Peters,  Def .  Rec.  Testimony, 
vol.  ii,  pp.  690-691,  699,  729-731. 

*  Cf.  Amended  Pet.  in  Pleadings,  pp.  28-29.  Testimony  R.  S.  Waddell,  Brief 
vol.  ii,  pp.  22-23. 

»  In  1886,  the  stock  of  the  Marcellus  Company  was  sold  to  du  Pont  de  Nemours,  the 
Hazard,  and  Laflm  and  Rand  Companies  and  the  Oriental  Powder  Mills.  In  the  same 
year  the  Ohio  Powder  Company  disposed  of  38  per  cent  of  its  stock  to  the  first  three  of 
these  companies,  Cf.  Amended  Pet.  Pleadings,  p.  32. 


8  QUARTERLY  JOURNAL  OF  ECONOMICS 

combination,  known  as  the  "  Nine  Companies," l 
outside  of  the  Laflin  and  Rand,  Hazard,  and  du  Pont  de 
Nemours  Companies,  known  as  the  "  Three  Com- 
panies," should  be  allotted  arbitrary  quotas  of  so 
many  thousand  kegs  of  powder  per  year.  Whenever 
the  "  Three  Companies "  should  show  an  increase 
in  average  yearly  sales  of  powder,  it  was  provided 
that  the  total  allottments  to  the  "  Nine  Companies  " 
should  be  correspondingly  increased.2  In  case  the 
"  Nine  Companies  "  sold  more  than  their  total  allott- 
ment,  they  agreed  to  take  from  the  " Three  Companies" 
sufficient  powder  to  adjust  the  liability  at  a  price  of 
three-quarters  of  the  established  sales  prices,  in  the 
case  of  sporting,  and  five-sixths  in  the  case  of  blasting 
powder.3  Thus  the  "  Three  Companies "  were  left 
free  to  sell  as  much  powder  as  they  could,  it  being 
merely  provided  that  when  their  sales  should  increase 
beyond  the  average  for  the  years  1882,  1883,  and  1884 
the  total  allottment  of  the  "  Nine  Companies  "  should 
be  increased.  On  the  other  hand,  if  the  "  Nine  Com- 
panies "  sold  more  than  their  allottment,  including 
such  increases  in  percentages  as  might  accrue  to  them 
through  increases  in  sales  by  the  "  Three  Companies  " 
during  the  year,  they  were  obliged  to  adjust  this  by 
purchase  from  the  said  "  Three  Companies." 

The  agreement  established  a  "  Board  of  Arbitra- 
tion "  consisting  of  a  chairman  and  two  other  members 
who  were  to  be  designated  by  the  Association.  The 
Board  was  to  settle  all  the  questions  in  dispute  and 
their  decisions  thereon  were  to  be  final.4  The  Schagti- 

1  Oriental  Powder  Mills,  Miami  Powder  Company,  American  Powder  Mills,  Austin 
Powder  Co.,  King's  Great  Western  Powder  Co.,  Lake  Superior  Powder  Co.,  Sycamore 
Powder  Mfg.  Co.,  Ohio  Powder  Co.,  and  Marcellus  Powder  Co. 

«  Cf.  Agreement.     Gov't  Exhibit  No.  7,  Pet.  Rec.  Exhibits,  vol.  i,  p.  114. 
«  Ibid.,  pp.  117-119.  «  Ibid.,  pp.  119-120. 


THE  POWDER   TRUST,  1872-1912  9 

coke  Powder  Company,  a  majority  of  whose  stock 
was  held  by  Laflin  and  Rand,  was  to  be  regarded  in 
the  matter  of  sales  as  a  part  of  the  latter  company. 
Laflin  and  Rand  on  their  part  guaranteed  that  the 
Schagticoke  Company  would  comply  with  all  the 
provisions  of  the  agreement.1  Within  six  months 
of  the  formation  of  this  new  combination  agreement 
the  prices  that  had  so  declined  during  the  early  eighties 
had  recovered  to  practically  their  former  figures.2 
The  trade  of  the  California  Powder  Works  was,  as 
before,  regulated  by  a  supplementary  agreement.3 
Four  other  supplementary  agreements  were  also  entered 
into  in  the  two  next  succeeding  years,  at  New  Orleans, 
Chattanooga,  Louisville,  and  Cincinnati  respectively, 
looking  to  the  strict  enforcement  of  the  regulations 
and  prices  of  the  Association.4 

As  provided  by  its  own  terms  the  agreement  of 
1886  lapsed  or  was  to  lapse  on  December  31,  1889. 
But  before  that  date  the  same  twelve  companies, 
parties  to  the  1886  agreement,  entered  into  the  so-called 
"  Fundamental  Agreement "  of  1889.  The  objects 
of  the  third  compact  as  stated  were  identical  with 
those  of  the  second  one.  In  operation  also  the  new 

i  Ibid.,  p.  121. 

*  Testimony  of  Gershon  M.  Peters.    Def.  Rec.  Testimony,  vol.  ii,  pp.  697-698.    Cf. 
Testimony  of  R.  S.  Waddell,  Brief,  vol.  2,  pp.  28-29. 

1  The  agreements  were  slightly  altered.  Certain  of  the  members  of  the  combination 
were  allowed  to  ship  into  Pacific  Coast  Territory  a  limited  amount  of  certain  high  grade 
goods.  But  none  were  allowed  to  ship  in  goods  of  the  lower  grade.  Such  sales,  however, 
as  were  made  in  this  territory  were  to  be  at  prices  named  by  the  California  concern  and 
were  also  to  be  in  accordance  with  its  rules.  In  return  the  California  Powder  Works 
was  permitted  to  make  sales,  with  certain  exceptions,  east  of  the  "  neutral  belt,"  terri- 
tory formerly  exclusively  reserved  to  the  combination.  An  interesting  feature  of  these 
agreements  is  the  designation  of  the  parties  thereto  not  by  their  names,  but  by  certain 
letters  of  the  alphabet.  Cf.  Abstracts  referring  to  Pac.  Coast  Sales.  Gov't  Exhibits 
Nos.  114  and  115,  Pet.  Rec.  Exhibits,  vol.  ii,  pp.  996-1001. 

*  The  text  of  the  agreements  at  New  Orleans,  Louisville,  and  Cincinnati  may  be 
found  in  Pet.  Rec.  Exhibits,  Nos.  8-10.  vol.  i,  pp.  123-132.     Reference  is  made  to  the 
Chattanooga  Agreement  in  a  letter  of  the  Hazard  Powder  Company  to  its  agent  at 
Chattanooga.     Gov't  Exhibit  No.  46,  ibid.,  p.  254. 


10  QUARTERLY  JOURNAL  OF  ECONOMICS 

pool  adopted  in  general  the  same  methods  previously 
in  vogue  under  that  agreement.  The  United  States 
was  divided  into  seven  districts  and,  as  before,  trade 
on  the  Pacific  Coast  was  to  be  regulated  by  a  supple- 
mentary arrangement  with  the  California  Powder 
Works.1  A  "  Board  of  Trade "  of  five  members 
succeeded  the  "  Board  of  Arbitration "  of  the  pre- 
ceding agreement,  with  power  to  fix  and  alter  prices 
and  to  adjudicate  grievances.  The  total  volume  of 
sales  was  to  be  regarded  as  the  aggregate  trade  for  the 
year  and  was  to  be  divided  in  direct  proportion  to  the 
yearly  allottment  of  each  one  of  the  parties.2  The 
Board  of  Trade  was  directed  to  make  computations 
of  sales  in  excess  of  or  deficiencies  below  the  allott- 
ments  thus  provided  for  and  to  furnish  each  party 
with  a  written  accounting  in  full  detail.  Within 
thirty  days  parties  liable  were  required  to  pay  cash 
into  the  treasury  for  excesses.  This  money  was  then 
to  be  distributed  among  the  parties  entitled  thereto 
as  shown  by  the  accounting.3 

One  paragraph  of  the  Fundamental  Agreement 
provided  that  any  one  who  was  injured  by  an  overt 
act  of  the  Board  of  Trade,  "  as  for  instance  the  reduction 
of  a  price  at  a  place,  in  treatment  of  a  local  disturbance 
of  trade,"  should  be  compensated  for  the  loss  sustained 
by  the  payment  of  money.4  The  new  agreement 
embraced  companies  that  controlled  ninety-five  per 
cent  of  the  output  of  rifle  powder  and  ninety  per  cent 
of  the  output  of  the  blasting  powder  of  the  United 

»  Fundamental  Agreement,  Gov't  Exhibit  No.  6,  Pet.  Rec.  Exhibits,  vol.  i,  pp. 
94-109.  Cf.  pp.  100-101. 

*  Hazard,  Laflin  and  Rand,  and  du  Pont  de  Nemours  Companies  to  be  regarded  as 
one  party. 

*  Fundamental  Agreement,  Gov't  Exhibit  No.  6,  Pet.  Reo.  Exhibits,  vol.  i,  pp.  101- 
102. 

«  Op.  cit.  Fundamental  Agreement,  p.  107. 


THE  POWDER  TRUST,  1872-1912  11 

States.1  The  agreement  was  to  go  into  effect  in 
January,  1890,  and  was  to  continue  in  force  to  June  30, 
1895,  and  indefinitely  from  year  to  year  thereafter, 
unless  one  or  more  of  the  parties  should  give  notice 
of  intent  to  withdraw  from  it.2  As  a  supplement 
to  the  Fundamental  Agreement  an  "  Auxiliary  Agree- 
ment "  was  entered  into  on  the  19th  of  December, 
1889.  This  made  specific  provision  for  the  work  of 
the  Board  of  Trade,  and  laid  down  numerous  rules 
in  regard  to  deliveries,  agents,  magazines,  etc.3 

With  the  conclusion  of  the  Fundamental  Agreement 
of  1889,  the  first  period  of  the  history  of  the  powder 
combination  closes.  It  may  be  styled  the  period  of 
inception.  In  it  both  the  gunpowder  trade  and  the 
dynamite  trade  went  through  the  first  stage  of  com- 
bination. The  gunpowder  trade  in  this  period  has 
been  combined  effectively;  but  the  dynamite  trade 
(as  will  appear  presently)  was  not  fully  organized 
until  later.  The  full  consolidation  of  the  dynamite 
trade  belongs  in  the  second  period,  as  well  as  does 
the  story  of  the  establishment  of  closer  and  more 
harmonious  relations  among  the  members  of  the 
combination. 

PERIOD  II 

The  passage  of  the  Sherman  Act  hi  1890  was  ap- 
parently unknown  to  the  members  of  the  combination. 
This  was  perhaps  not  unnatural,  since  at  that  time, 
or  at  least  shortly  after,  the  associates  had  much 
more  vital  matters  to  attend  to.  These  related  chiefly 
to  the  suppression  of  competition.  Between  1890 
and  1894,  three  new  concerns  entered  the  field  of 

»  Testimony  of  R.  S.  Waddell,  Brief,  vol.  2,  p.  37. 
J  Op.  cit.  Fundamental  Agreement,  p.  108. 

1  Auxiliary  Agreement,  Gov't  Exhibit  No.  100,  Pet.  Rec.  Exhibits,  vol.  ii,  pp.  906- 
911. 


12  QUARTERLY  JOURNAL  OF  ECONOMICS 

powder  manufacture,  i.  e.,  Chattanooga  Powder  Com- 
pany in  1890,  Phoenix  Powder  Manufacturing  Company 
in  1891,  and  the  Southern  Powder  Company  in  1894.1 
The  Chattanooga  Company  had  scarcely  begun  busi- 
ness before  war  against  it  was  commenced  by  the 
combination.  Mr.  F.  J.  Waddell  was  instructed  by 
Eugene  du  Pont  "  to  put  the  Chattanooga  Powder 
Company  out  of  business  by  selling  at  lower  prices/' 2 
Acting  under  these  orders  that  gentleman  went  into 
southern  territory  where  he  sold  powder  at  cost,  or 
below  in  some  cases.  By  paying  the  railroad  agent 
at  Ooltewah,  Tennessee,  from  $15  to  $18  per  month, 
Waddell  was  furnished  with  a  weekly  statement  of 
the  powder  shipments  made  by  the  Chattanooga 
Company  together  with  the  name  of  the  consignee, 
the  number  of  kegs,  and  the  destination;3  a  method 
of  competition  that  reminds  one  strongly  of  the  methods 
of  espionage  employed  by  the  Standard  Oil  Company 
upon  various  occasions.  Finally  in  the  latter  part 
of  1895  the  Chattanooga  concern  sold  out.4  Scarcely 
less  vicious  in  character  was  the  campaign  waged 
against  the  Phoenix  and  the  Southern  Companies, 
both  of  which  capitulated  to  the  superior  strength  of 
the  combination,5  and  passed  under  its  control.6 

i  Cf .  Amended  Petition,  Pleadings,  pp.  37-39.  Besides  these  concerns  the  Equitable 
Powder  Company  was  organized  in  1892.  At  the  time  of  its  organization  du  Pont  de 
Nemours  acquired  41  per  cent  of  its  capital  stock. 

*  Testimony  of  F.  J.  Waddell.     Brief,  vol.  2,  p.  60. 

*  Ibid.,  p.  60  ff. 

4  Laflin  and  Rand  and  the  du  Pont  de  Nemours  Company  acquired  55.41  per  cent 
of  its  stock.  Cf.  Amended  Pet.  Pleadings,  pp.  40-41. 

8  Cf.  Testimony  of  F.  J.  Waddell,  Brief,  vol.  2,  pp.  67-75. 

6  Laflin  and  Rand,  du  Pont  de  Nemours,  and  the  Hazard  Company  acquired  all  or  a 
very  large  portion  of  the  stock  of  the  Southern  Powder  Company  and  later  dismantled 
its  mills.  Cf .  Amended  Pet. ,  Pleadings,  p.  40.  Laflin  and  Rand  and  the  Hazard  Com- 
pany together  with  the  American  Powder  Mills  and  the  Miami  and  Austin  Companies 
acquired  the  capital  stock  of  the  Phoenix  Powder  Mfg.  Co.  Cf.  Gov't  Exhibit  No.  136, 
Pet.  Rec.  Exhibits,  vol.  Hi,  p.  1694;  also  answers  of  various  companies  in  Pleadings,  pp. 
192,  244,  and  426. 


THE  POWDER   TRUST,  1872-1912  13 

About  July  1,  1896,  the  combination  held  a  "  round 
up "  as  one  somewhat  facetious  witness  styled  it. 
To  put  it  in  other  words,  the  outsiders  were  whipped.1 

Prior  to  the  close  of  this  competitive  struggle,  on 
May  8,  1895,  the  combination  at  its  quarterly  meeting 
appointed  a  committee  to  formulate  a  revision  of  the 
Fundamental  Agreement.  This  action  was  occasioned 
by  the  notification  of  the  president  of  the  King  Powder 
Company  2  that  the  stockholders  did  not  wish  to  renew 
their  arrangements  with  the  combination.3  The  terms 
of  the  Revised  Agreement  were  substantially  identical 
with  those  of  the  older  Fundamental  Agreement, 
merely  eliminating  one  or  two  sections  including  the 
article  in  regard  to  compensation  for  injuries  suffered 
through  overt  acts  of  the  Board  of  Trade  4  and  con- 
tinuing the  great  majority  of  the  rules  embodied  in 
the  early  document.5 

In  1896  the  acquisition  of  the  new  companies,  the 
Chattanooga,  Phoenix,  and  Southern,  gave  rise  to  a 
new  agreement  known  as  the  "  Understanding." 6 

*  Testimony  of  F.  J.  Waddell,  Brief,  vol.  2,  p.  73. 

1  Formerly  King's  Great  Western  Powder  Company.  The  name  was  changed  in 
1878. 

»  Minutes  of  Manufacturers  Meeting,  Gov't  Exhibit  No.  104,  Pet.  Rec.  Exhibits, 
vol.  ii,  p.  953. 

«  Supra,  p.  454,  note  3. 

*  Revised  Agreement,  Gov't  Exhibit  No.  106,  Pet.  Rec.  Exhibits,  vol.  ii,  pp.  958-961. 

«  Fundamental  Agreement  of  1896,  Gov't  Exhibit  No.  Ill,  Pet.  Reo.  Exhibits, 
vol.  ii,  pp.  973-989.  This  Agreement  is  called  "  the  pool  agreement  "  in  the  Amended 
Petition.  In  the  Amended  Petition  an  agreement  of  1891  is  referred  to  known  as  the 
President's  Agreement.  This  provided  for  a  Board  of  Trade  composed  of  a  representa- 
tive from  each  of  the  concerns  in  the  combination.  No  mention  is  made  of  this,  however, 
in  the  Brief  for  the  United  States,  which  document  does  show,  however,  that  in  1893  a 
Board  of  Trade  of  only  five  members  was  in  operation.  (Brief  for  the  United  States, 
vol.  2,  p.  54.)  Therefore,  if  such  a  representative  board  was  provided  for  in  1891,  it 
must  have  gone  out  of  existence  very  shortly.  Moreover,  the  index  to  the  Brief  gives 
the  heading  of  President's  Agreement  referring  to  vol.  ii,  p.  53,  of  that  document  where 
the  only  agreement  mentioned  is  the  "  Revised  Agreement  "  of  1895.  The  Amended 
Petition  does  not  speak  of  any  agreement  of  1895.  Knowledge  of  the  President's 
Agreement  is  specifically  denied  by  the  King  Powder  Company,  and  Laflin  and  Rand 
in  the  answers  of  these  defendants  to  the  suit  of  the  United  States.  Cf .  Pleadings,  pp. 
238-239  and  416. 


14  QUARTERLY  JOURNAL  OF  ECONOMICS 

This  document  practically  continued  the  Fundamental 
Agreement  of  1889.  There  was  to  be  but  one  copy 
of  the  Understanding,  which  was  to  have  no  title,  and 
this  single  copy  was  to  remain  in  the  custody  of  the 
Advisory  Committee.  A  syllabus  or  abstract  of  the 
document  was,  however,  to  be  prepared  and  given  to 
each  member  of  the  combination.1  Letters  of  the 
alphabet  were  used  to  designate  the  various  parties 
to  the  agreement.  A  key  2  was  also  adopted  indicating 
the  parties  represented  by  the  alphabetical  designation. 
A  comparison  of  the  abstract  of  the  Understanding 
with  the  Fundamental  Agreement  reveals  but  slight 
differences  in  the  purport  of  the  two  documents. 
Sales  in  the  sixth  and  seventh  districts,  i.  e.,  the  Pacific 
Slope  District,  and  the  Neutral  Belt,  were  to  be  reg- 
ulated by  the  agreements  of  1886,3  and  the  Advisory 
Committee  (instead  of  the  Board  of  Trade)  of  five 
members  was  to  regulate  prices  and  other  matters  as 
before.4  Including  the  Schagticoke  Company,  the 
new  combination  embraced  seventeen  concerns  outside 
of  the  California  Powder  Works.5 

Almost  immediately  after  the  combination  of  1896 
was  formed,  prices  of  powder  were  advanced  by  the 
combination.6  Between  1896  and  1904,  the  period 
during  which  the  agreement  of  1896  was  operative,7 
rights  were  given  to  some  of  the  members  of  the  com- 

»  Minutes,  Gov't  Exhibit  No.  110,  Pet.  Rec.  Exhibits,  vol.  ii,  p.  971. 

7  For  a  copy  of  this  "  Key  "  cf.  Pet.  Rec.  Exhibits,  vol.  ii,  p.  989-990. 

8  Supra,  p.  453,  note  2. 

«  Cf.  Agreement  of  1896,  Gov't  Exhibit  No.  Ill,  Pet.  Rec.  Exhibits,  vol.  ii,  p.  973- 
989,  or  Abstract  (of  the  same),  Gov't  Exhibit  No.  113,  ibid.,  p.  992-996. 

'  To  the  original  twelve  companies  were  added  the  Chattanooga  and  Southern 
Powder  Companies,  the  Phoenix  and  Equitable  Powder  Mfg.  Companies  and  the 
Schagticoke  Company.  The  last  two,  it  will  be  recalled,  were  strongly  affiliated  with 
the  du  Pont  and  Laflin  and  Rand  Companies. 

Testimony  of  Jonathan  A.  Haskell,  Def.  Rec.  Testimony,  vol.  ii,  p.  1117. 
7  Answer  of  Laflin  and  Rand,  Pleadings,  pp.  247-248. 


THE  POWDER   TRUST,  1872-1912  15 

bination  to  contract  with  certain  particular  customers, 
at  specified  prices  set  by  the  Association,  below  the 
regular  schedule  prices.  The  awarding  of  these  con- 
tracts was  in  the  hands  of  the  Advisory  Committee, 
under  certain  regulations  adopted  by  the  parties  to 
the  combination.1 

It  will  be  recalled  that  immediately  after  the  adoption 
of  the  Fundamental  Agreement  of  1889  the  prices  of 
powder  were  raised  and  that  in  the  early  nineties  the 
Association  was  obliged  to  meet  severe  competition 
on  the  part  of  outsiders.  Now  the  rise  in  prices  that 
followed  the  agreement  of  1896  was  accompanied  by 
exactly  the  same  phenomena.  Between  1896  and 
1902  four  new  independents  were  organized  outside 
of  the  combination;  the  Birmingham,  Indiana,  North- 
western, and  Fairmount  Powder  Companies.  In  the 
case  of  the  Birmingham  Company  the  combination 
secured  the  freight  rates  out  of  Birmingham  on  all 
the  railroads,  and  set  a  price  on  powder  of  70  cents 
per  keg,  f.  o.  b.  Birmingham,  and  then  added  the 
freight  from  there  to  points  that  ought  to  be  reached 
so  that  powder  would  not  net  more  than  70  cents  a 
keg  at  Birmingham,2  and  awaited  results.  As  the 
relator  of  this  method  of  arrangement  laconically 
remarked:  "  It  was,  perhaps,  a  year  until  they  died."  3 

The  Indiana  Powder  Company  was  a  somewhat 
different  form  of  company  than  the  ordinary.  It 
was  promoted,  if  that  term  be  allowed,  by  a  George  L. 
Rood,  formerly  a  salesman  in  the  employment  of  the 
Hazard  Powder  Company,4  who  induced  several 
mine  owners  and  operators  of  West  Virginia,  Ohio, 

1  Minutes,  Gov't  Exhibit  No.  118-i,  Pet.  Rec.  Exhibits,  vol.  ii,  pp.  1071-1072. 

»  Testimony  of  F.  J.  Waddell,  Brief,  vol.  2,  pp.  129-130. 

*  Ibid.,  p.  130. 

«  Testimony  of  George  L.  Rood,  Def.  Reo.  Testimony,  vol.  i,  pp.  420-423. 


16  QUARTERLY  JOURNAL  OF  ECONOMICS 

Kentucky,  and  Indiana  to  go  in  with  him  and  organize 
the  company.  The  mine  owners  and  operators  were 
in  the  habit  of  selling  powder  to  their  miners,  and, 
being  interested  in  the  new  concern,  would  buy  their 
powder  from  it.  The  work  of  construction  upon  the 
mills  just  outside  of  Terre  Haute  had  not  much  more 
than  begun  before  F.  J.  Waddell  and  Mr.  Colvin  of 
the  Hazard  Powder  Company  appeared  upon  the  scene 
of  action.  Their  object  was  to  determine  if  some 
agreement  could  not  be  arrived  at  between  the  Hazard 
Company  and  the  new  concern.  The  proposition 
offered  was  that  the  Indiana  Company  increase  their 
capital  stock  and  sell  the  Hazard  Company  51  per 
cent  of  it  at  par.1  The  offer  was,  however,  refused; 
Rood  completed  his  works  and  began  to  get  out  his 
powder. 

In  the  meantime  Eugene  du  Pont  and  Mr.  F.  W. 
Olin  (the  latter  of  the  Equitable)  had  been  appointed 
a  committee  to  attend  to  the  Indiana's  competition. 
The  Great  Northern  Supply  Company  was  organized 
by  the  combination  and  began  business  hi  the  vicinity 
of  Terre  Haute,  as  near  as  possible  to  the  mines  of  the 
coal  operators  who  were  stockholders  in  the  Indiana 
Powder  Company.  The  Supply  Company  put  out 
a  line  of  wagons  retailing  powder  at  $1.25  per  keg, 
while  the  price  agreed  upon  by  the  miners  and  operators 
was  $1.75  per  keg.  The  Great  Northern  Supply 
Company  obtained  its  powder  from  the  overlying 
companies,  chiefly  from  Laflin  and  Rand,  the  Hazard, 
du  Pont  de  Nemours,  and  American.2  The  contest 
lasted  from  about  1899  to  the  latter  part  of  1901  or 

*  Testimony  of  F.  J.  Waddell,  Brief,  vol.  2,  p.  137  and  of  George  L.  Rood,  Def .  Rec. 
Testimony,  vol.  i,  pp.  425-427. 

*  Testimony  of  H.  M.  Barksdale,  Def.  Rec.  Testimony,  vol.  ii,  pp.  663-666  and  F.  J. 
Waddell,  Brief,  vol.  2,  pp.  138-140;  George  L.  Rood,  Def.  Rec.  Testimony,  vol.  i,  pp. 
428-129. 


THE  POWDER   TRUST,  1872-1912  17 

early  1902.  Rood  finally  made  a  proposition  to  the 
combination  and  it  was  accepted.  A  majority  of  the 
Indiana's  stock  was  sold  out  to  Laflin  and  Rand  and 
E.  I.  du  Pont  de  Nemours  and  Company  at  a  rate  of 
five  in  cash  to  one  in  stock.  Rood  at  the  same  time 
agreed  not  to  embark  in  the  powder  business  for  a 
period  of  twenty  years.1 

The  North  Western  Powder  Company  had  been 
subjected  to  the  same  competition  as  the  Indiana 
through  the  fact  that  it  was  located  only  about  thirty- 
five  miles  from  the  Indiana  Company's  plant,2  and 
was  operating  in  practically  the  same  manner  as  the 
latter  concern.3  Rood  also  arranged  for  the  sale  of  the 
stock  of  this  concern  .to  certain  members  of  the  com- 
bination,4 at  about  the  same  tune  as  he  disposed  of 
the  Indiana  Powder  Company.  The  fourth  company 
of  those  entering  upon  the  manufacture  of  powder 
between  1896  and  1902,  the  Fairmount  Company, 
was  a  small  concern  in  West  Virginia  and  sold  out  very 
quickly.5  As  to  the  Great  Northern  Supply  Company, 
that  concern  was  liquidated  and  made  an  assignment 
for  the  benefit  of  its  creditors,  the  principal  ones  being 
E.  I.  du  Pont  de  Nemours  and  Company,  and  Laflin 
and  Rand.6 

The  control  and  power  of  the  powder  combination 
was  further  strengthened  between  1896  and  1902  by  a 
series  of  agreements  entered  into  with  various  in- 
dividuals and  concerns.  An  agreement  with  A.  S. 
Speece  and  Company  provided  that  in  consideration 

Testimony  of  George  L.  Rood,  Def.  Rec.  Testimony,  vol.  i,  pp.  430-431,  439. 
Op.  cit.  Def.  Rec.  Testimony,  vol.  i,  p.  431. 
Brief,  vol.  ii,  p.  152. 
Ibid.,  note  1,  above. 

A  majority  of  the  stock  of  the  Fairmount  Company  was  purchased  by  the  du  Pont 
interests.     Cf.  Answer  of  the  Fairmount  Powder  Company,  Pleadings,  p.  326. 

•  Testimony  of  H.  M.  Barksdale,  Def.  Rec.  Testimony,  vol.  ii,  p.  666. 


18  QUARTERLY  JOURNAL  OF  ECONOMICS 

of  $800  per  annum  they  and  their  representative, 
D.  M.  Kirk,  would  engage  to  keep  out  of  the  powder 
business.  An  agreement  of  like  nature  was  concluded 
on  May  15,  1896,  with  F.  L.  Kellogg.  Some  sort  of  a 
compact  was  also  entered  into  between  the  Belmont 
Powder  Works,  party  of  the  first  part,  and  E.  I.  du 
Pont  de  Nemours  and  Laflin  and  Rand,  party  of  the 
second  part;  while  A.  S.  Kirk  and  Company  had 
agreements,  the  precise  character  of  which  is  not 
revealed  by  the  documents.1  Further,  on  January 
29,  1901,  a  contract  was  made  whereby  the  King 
Powder  Company  agreed  to  sell  its  entire  output  of 
powder,  except  such  as  might  be  required  by  the 
Peters  Cartridge  Company  with  which  it  was  intimately 
associated,  to  E.  I.  du  Pont  de  Nemours  and  Company, 
and  Laflin  and  Rand  for  a  period  of  twenty-five  years 
from  the  first  day  of  April,  1901. 2  With  the  purchase 
of  the  majority  or  entire  control  of  the  four  powder 
companies  that  had  entered  the  field  between  1896 
and  1902,  the  Birmingham,  Indiana,  Fairmount,  and 
Northwestern,  and  the  completion  of  the  agreements 
just  mentioned,  competition  in  the  manufacture  of 
blasting  and  sporting  powders  seems  to  have  been 
nearly  eliminated  throughout  the  United  States  except 
in  the  state  of  Pennsylvania.3 

It  now  becomes  necessary  to  go  back  somewhat  in 
order  to  examine  the  process  by  which  the  Powder 
Trust  secured  control  of  the  dynamite  trade.  Dyna- 
mite, a  high  explosive,  was  first  manufactured  on  the 

i  Brief,  vol.  2,  pp.  155-158. 

*  Testimony  of  Gershon  M.  Peters,  Def.  Rec.  Testimony,  vol.  ii,  pp.  708-710.     Cf. 
also  Gov't  Exhibit  No.  333,  Pet.  Rec.  Exhibits,  vol.  v,  pp.  2393-2398. 

*  This  is  the  allegation  of  the  Government  in  its  Brief  where  it  is  stated  that  the 
same  is  admitted  by  the  anwer  of  E.  I.  du  Pont  de  Nemours  in  the  Pleadings,  Cf .  Brief, 
vol.  2,  p.  161  and  Pleadings,  pp.  148-151.     The  writer  feels  that  the  admission  in  the 
terms  in  which  it  is  couched  is  so  qualified  as  to  preclude  its  being  regarded  as  an  absolute 
affirmation  of  the  charge. 


THE  POWDER   TRUST,  1872-1912  19 

Pacific  Coast  about  the  year  1869.  It  was  used  to  a 
considerable  extent  in  the  western  states  as  a  substitute 
for  blasting  powder  before  it  made  much  progress 
in  the  East.1  Before  long,  however,  it  became  evident 
that  dynamite  was  a  strong  competitor  of  blasting 
powder.  It  became  not  merely  desirable  but  abso- 
lutely necessary  that  the  powder  combination  should 
control  it,  blasting  powder  being  one  of  its  principal 
articles  of  manufacture. 

About  1879  or  1880  the  Repauno  Chemical  Company 
had  been  formed  by  the  du  Pont  and  Laflin  and  Rand 
interests  for  the  purpose  of  manufacturing  dynamite. 
At  that  tune  there  were  in  the  United  States  several 
concerns  engaged  in  the  manufacture  of  that  explosive. 
On  the  Pacific  Coast  were  the  California  Powder 
Works  and  the  Giant  Powder  Company;  in  the  East 
were  the  Aetna  Powder  Company  and  the  Lake  Sup- 
perior  Powder  Company,  while  a  branch  of  the  Cali- 
fornia Powder  Works  was  also  operating  in  that  section. 
A  branch  of  the  Giant  Powder  Company,  known  as 
the  Atlantic  Dynamite  Company,  was  doing  business 
in  the  state  of  New  Jersey.  At  the  time  of  the  organi- 
zation of  the  Repauno  Chemical  Company  another 
concern,  the  Hercules  Powder  Company,  was  also 
organized  by  the  same  interests,  for  the  purpose  of 
acquiring  the  eastern  plant  of  the  California  Powder 
Works.  Coincidently  the  same  parties  also  purchased 
one-third  of  the  stock  of  the  Giant  Powder  Company's 
subsidiary,  the  Atlantic  Dynamite  Company.2 

Up  to  1895  the  stockholders  of  the  three  last  men- 
tioned concerns  remained  practically  the  same,  that 
is  to  say,  the  du  Pont  and  Laflin  and  Rand  interests 
controlled  both  the  Hercules  Powder  Company  and  the 

i  Brief,  vol.  2,  p.  166. 

J  Testimony  of  H.  M.  Barksdale,  Def.  Rec.  Testimony,  vol.  ii,  pp.  598-601. 


20  QUARTERLY  JOURNAL  OF  ECONOMICS 

Repauno  Chemical  Company,  holding  at  the  same 
time  a  one-third  interest  in  the  Atlantic  Dynamite 
Company.  It  so  happened  that  the  business  of  the 
Atlantic  Company  in  the  East  was  conducted  by  two 
agents,  between  whom,  from  tune  to  time,  a  considerable 
amount  of  friction  arose.  At  length  the  California 
owners  found  themselves  in  a  position  where  they 
must  dismiss  one  of  these  men  and  continue  the  other, 
or  else  secure  some  one  else  to  manage  their  business 
for  them  hi  the  East.1  The  upshot  of  this  situation 
was  the  organization  of  the  Eastern  Dynamite  Company 
under  New  Jersey  laws  with  an  authorized  capital 
stock  of  $2,000,000.  Of  this  $1,400,000  2  was  issued 
hi  exchange  for  the  capital  stocks  of  the  Repauno 
Chemical  Company  and  Hercules  Powder  Company. 
The  remaining  $600,000 3  was  exchanged  for  the 
assets  of  the  Atlantic  Dynamite  Company.  Now  as 
du  Pont  de  Nemours  and  Company  and  Laflin  and 
Rand  had  owned  together  nine-twelfths  of  the  stocks 
of  the  Repauno  and  Hercules  Companies,  they  received 
nine-twelfths  of  the  stock  of  the  Eastern  Dynamite 
Company  in  exchange  therefor,  or  nine-twelfths  of 
$1,400,000,  which  gave  them  $1,050,000  of  stock  out 
of  a  total  capitalization  of  $2,000,000  and  therefore 
control.4  After  the  transfer  of  the  property  of  the 
Atlantic  Dynamite  Company  to  the  Eastern  Dynamite 
Company  the  directors  of  the  latter  concern  caused 
to  be  incorporated  in  New  Jersey  the  Atlantic  Dyna- 

1  Op.  cit.  Def.  Rec.  Testimony,  vol.  ii,  p.  617. 

1  Resolutions  of  Directors  of  the  Eastern  Dynamite  Company.  Gov't  Exhibit  No. 
150,  Pet.  Rec.  Exhibits,  vol.  iv,  p.  1761-1762. 

»  Ibid.,  Exhibit  No.  149,  p.  1760. 

«  Laflin  and  Rand  and  the  du  Pont  Company  received  also  $200,000  additional 
stock  as  their  share  of  the  Atlantic  Dynamite  deal.  The  holdings  of  both,  including 
that  of  the  du  Font's  through  the  Hazard,  which  they  owned  outright,  were  in  the  year 
1902,  $1,206,000. 


THE  POWDER   TRUST,  1872-1912  21 

mite  Company  and  caused  the  Eastern  Dynamite 
Company  to  subscribe  for  the  entire  issue  of  its  stock 
amounting  to  5500  shares.1  This  process  left  the 
Eastern  Dynamite  Company  a  mere  holding  corpora- 
tion. 

As  a  whole  the  dynamite  trade  was  combined  and 
consolidated  with  great  rapidity.  In  1895  the  Eastern 
Dynamite  Company  entered  into  an  agreement  with 
the  Aetna  Powder  Company  known  as  the  "  Memo- 
randum of  Understanding,"  the  object  of  which  was 
to  secure  the  apportionment  of  the  dynamite  trade 
between  those  two  companies  and  the  companies 
controlled  by  them.  The  two  parties  to  the  combina- 
tion were  to  divide  business  between  themselves  upon 
a  basis  of  the  proportion  of  total  trade  enjoyed  by  each 
for  the  year  ending  June  30,  1895.  If  the  Aetna 
over-sold  its  quota  it  was  to  pay  Jonathan  A.  Haskell, 
representing  the  Eastern  Dynamite  Company,  a 
penalty  of  two  cents  per  pound  on  such  over-sales. 
On  the  other  hand,  if  the  Aetna  had  not  sold  its  pro- 
portion of  the  total  trade  it  was  to  be  reimbursed  at 
the  rate  of  two  cents  per  pound  by  Haskell.  A  "  Stand- 
ing Committee "  of  five  members  with  the  same 
function  as  the  Board  of  Trade  of  the  powder  combina- 
tion was  established.  This  committee  was  to  meet 
monthly  on,  or  as  near  as  possible  to,  the  date  of 
meeting  of  the  Board  of  Trade  of  the  Gunpowder 
Association.  Neither  party  of  the  two  parties  to  the 
agreement  was  to  interfere  with  the  business  of  the 
other.  If  one  took  trade  from  the  other  by  reducing 
prices,  he  was  heavily  penalized  upon  a  demonstration 
of  that  fact.  Trade  diverted  to  an  outside  competitor 
was  to  be  considered  as  belonging  to  an  associate  for 
at  least  six  months  and  for  three  more  if  requested. 

i  Brief,  vol.  2,  p.  167. 


22  QUARTERLY  JOURNAL  OF  ECONOMICS 

If  either  company  purchased  any  other  high  explosive 
company,  it  was  entitled  thereby,  the  other  party 
not  participating  in  the  transaction,  to  sell  a  propor- 
tionally larger  percentage  of  the  total  trade.1  The 
advantage  of  this  last  arrangement  was  clearly  with 
the  Eastern  Dynamite  Company.  Between  the  middle 
of  1896  and  the  middle  of  1899  that  holding  company 
acquired  the  New  York  Powder  Company,  the  United 
States  Dynamite  Company,  Clinton  Dynamite  Com- 
pany, Mt.  Wolf  Dynamite  Company,  American  Forcite 
Powder  Manufacturing  Company,  and  several  other 
concerns.2 

At  one  tune  in  its  history  the  American  Tobacco 
Company  started  to  invade  the  territory  across  the 
water.  In  the  case  of  the  powder  trust  the  reverse 
occurred.  In  1897  foreign  manufacturers  of  gun- 
powder, detonators,  and  high  explosives  began  the 
erection  of  factories  at  Jamesburg,  New  Jersey.  Rep- 
resentatives of  the  American  combination,  therefore, 
shortly  crossed  the  water  and  opened  negotiations 
with  the  foreign  manufacturers  who  had  begun  the 
invasion.  The  result  was  that  a  satisfactory  agreement 
was  arrived  at  which  has  been  known  under  various 
titles  as  the  Jamesburg  Agreement,  the  London  Agree- 
ment, the  International  Agreement,  and  the  European 
Agreement.3  This  agreement  is  so  typical  an  example 
of  full-fledged  international  combination  that  its 

1  Memorandum  of  Understanding,  Gov't  Exhibit  No.  236,  Pet.  Rec.  Exhibits,  vol. 
iv,  1991-1995.   A  supplementary  agreement  was  entered  into  explanatory  of  this  original 
"  Memorandum  of  Understanding,"  showing,  among  other  things,  the  exact  percen- 
tages allotted  to  each  party.     Cf.  Supplementary  Explanation  of  Original  Agreement. 
Gov't  Exhibit  No.  247,  Pet.  Rec.  Exhibits,  vol.  iv,  pp.  2016-2019. 

2  A  list  of  these  companies  is  given  in  the  supplementary  explanation  of  the  original 
agreement  between  the  Aetna  and  Eastern  Companies.     Gov't  Exhibit  No.  247,  Pet. 
Rec.  Exhibits,  vol.  iv,  pp.  2016-2019. 

8  Brief,  vol.  2,  pp.  174-175.  It  is  to  be  noted  that  the  Judson  Dynamite  and  Powder 
Company,  and  the  Giant  Powder  Company  Consolidated  had  not  been  before  parties 
to  the  agreements  of  the  Powder  Combination  but  were  brought  into  it  in  the  European 
agreement. 


THE  POWDER   TRUST,  1872-1912  23 

principal  provisions  deserve  detailed  statement.     They 
were:  — 

1.  In  regard  to  detonators  the  "  European  Factories  "  l  agreed 
to  abstain  from  erecting  works  in  the  United  States,  and  to  abandon 
the  project  begun  at  Jamesburg.    The  expenses  so  far  incurred 
in  the  construction  of  this  plant  were  to  be  shouldered  by  the 
"  American  Factories  " 2  which  also  agreed  to  take  of  the  "  Euro- 
pean Factories  "  five  million  detonators  per  year.3 

2.  As  to  black  powder  both  parties  bound  themselves  to  erect 
no  factories,  the  Americans  in  Europe,  the  Europeans  in  the  United 
States.    Each,  however,  was  free  to  ship  into  the  territory  of  the 
other.4 

3.  The  arrangements  in  regard  to  smokeless  sporting  powder 
were  the  same  as  in  regard  to  black  powder.6 

4.  Smokeless  military  powder  factories  were  not  to  be  erected 
by  the  Americans  in  Europe  or  the  Europeans  in  America.    It 
was  agreed  that  European  factories  upon  receipt  of  an  inquiry 
from  the  Government  of  the  United  States  in  regard  to  explosives, 
should  first  ascertain  the  price  quoted  or  fixed  by  the  American 
factories  and  were  then  bound  to  neither  quote  nor  sell  below  that 
figure.     Reciprocally    the    American    factories    on    receiving    an 
inquiry  from  governments  other  than  their  own,  should,  in  like 
manner,  obtain  the  price  the  European  factories  were  quoting  or 
had  fixed  and  were  bound  not  to  quote  or  sell  below  it.6 

5.  For  the  sale  of  high  explosives  the  world  was  divided  into 
four  districts.    All  of  the  United  States,  its  territories  and  posses- 
sions, present  and  future,  Mexico,  Guatemala,  Honduras,  Nicaragua, 
and  Costa  Rica,  Columbia,  and  Venezuela  were  to  be  exclusively 
American  territory.    All  other  countries  in  South  America  and  the 
islands  of  the  Caribbean  Sea,  not  Spanish  possessions,  were  to  be 
common    territory    and    designated    as    "  syndicated    territory." 
The  Dominion  of  Canada  and  the  Spanish  possessions  in  the  Carib- 
bean were  to  be  a  free  market  unaffected  by  the  terms  of  the  agree- 
ment.   The  rest  of  the  world  was  to  be  exclusively  the  territory 
of  the  European  factories. 

1  These  companies  were  Vereinigte  Koln  Rottweiler  Pulver  Fabriken  of  Cologne  and 
the  Nobel-Dynamite  Trust  Company  (Ltd.)  of  London. 

*  Du  Pont  de  Nemours  and  Company,  Laflin  and  Rand,  Eastern  Dynamite,  Miami 
Powder  Co.,  American  Powder  Mills,  Aetna  and  Austin  Powder  Cos.,  Cal.  Powder 
Works,  Giant  Powder  Co.,  Consolidated,  Judson  Dynamite  &  Powder  Co. 

1  European  Agreement,  Gov't  Exhibit  No.  119,  Pet.  Rec.  Exhibits,  vol.  ii,  pp. 
1124-1125. 

«  Ibid.,  p.  1125.  »  Ibid.,  p.  1125. 

«  Ibid.,  pp.  1125-1126. 


24  QUARTERLY  JOURNAL  OF  ECONOMICS 

6.  A  chairman  and  vice-chairman  were  to  be  appointed 'by 
each  party  to  the  agreement.    The  chairmen  or  in  their  absence 
the  vice-chairmen  were  to  establish  the  rules  for  the  accomplish- 
ment of  the  terms  of  the  syndicate  arrangement,     (a)  They  were 
to  agree,  from  time  to  tune,  upon  a  basis  price  for  each  market  in 
syndicated  territory,  said  basis  to  include  the  cost  of  manufacturing, 
freight,  insurance,  etc.     (6)  They  were  also  to  establish  a  selling 
price  for  each  market  to  be  regarded  as  a  convention  price  below 
which  no  sales  were  to  be  effected.    The  difference  between  the 
selling  and  the  basis  prices  was  to  be  syndicate  profit  to  be  divided 
equally.1 

7.  A  common  syndicate  fund  of  $50,000  was  to  be  established 
by  a  payment  of  $1.00  per  case  upon  certain  grades  of  explosives 
shipped  into  syndicated  territory.    When  the  sum  of  these  assess- 
ments reached  that  figure  the  payments  were  to  be  reduced  to 
50  cents  per  case  and  from  the  fund  thus  established  fines  not 
recoverable  from  the  parties  were  to  be  deducted.      It  was  per- 
mitted that  the  chairman  should  utilize  two-thirds  of  this  common 
fund  for  the  purpose  of  protecting  the  common  interest  against 
outside  competition.2 

8.  Chairmen  were  to  adjudicate  all  breaches  of  the  agreement. 
On  failure  to  agree  they  were  to  appoint  an  umpire,  who  was  to 
be  a  European  or  an  American  according  as  the  complaint  was 
brought  by  the  American  or  European  factories.3 

9.  Fines:    (a)  for  trading  in  the  territory  of  the  other,  the 
penalty  was  the  invoice  value  of  the  goods;   (6)  for  cutting  prices 
hi  syndicated  territory,  no  limit  was   placed  upon  the  amount 
of  the  fine;    (c)  for  erecting  a  factory  in  the  exclusive  territory 
of  the  other,  the  penalty  should  not  be  less  than  £  10,000  * 

10.  The  agreement  was  to  go  into  effect  on  July  15,  1897,  for  a 
period  of  ten  years.    In  the  absence  of  six  months'  notice  it  was 
to  continue  thereafter  from  year  to  year.6 

The  "  European  Agreement "  was  very  shortly 
followed  by  the  "  Mexican  Agreement."  On  October 
1,  1898,  the  California  Powder  Works,  the  Judson 
Dynamite  and  Powder  Company,  and  the  Giant 
Powder  Company,  Consolidated,  known  as  the  "  West- 
ern Companies,"  entered  into  a  compact  with  the 
Eastern  Dynamite  Company  and  the  Aetna  Powder 

1  Ibid.,  pp.  1127-1128.  *  Ibid.,  p.  1129. 

*  Ibid.,  p.  1128.  •  Ibid.,  p.  1130. 

»  Ibid.,  pp.  1128-1129,  1130-1131. 


THE  POWDER   TRUST,  1872-1912  25 

Company,  known  as  the  "  Eastern  Companies/7  in 
regard  to  the  Mexican  trade.1  A  price  schedule 
was  prepared  by  the  parties  with  which  they  agreed 
to  comply  during  its  continuance.2  A  "  Board  of 
Representatives "  of  two  members  was  established 
for  the  Mexican  business,  one  member  to  be  appointed 
by  the  Eastern  and  one  by  the  Western  companies. 
These  were  given  power  to  investigate  complaints 
and  impose  penalties.  If  unable  to  adjust  the  matter 
satisfactorily,  the  representatives  were  to  appoint 
two  disinterested  parties  as  arbitrators  who  should 
in  turn  appoint  a  third,  if  a  decision  was  necessary, 
to  constitute  a  Board  of  Arbitrators.  Their  decision 
was  to  be  final.3  The  agreement  was  to  continue 
in  force  until  December  31,  1899,  and  from  year  to 
year  thereafter  except  upon  notice  of  three  months.4 
As  a  matter  of  actual  fact,  parties  continued  to  carry 
out  the  terms  of  the  agreement  down  to  1905.5 

The  force  of  the  Mexican  Agreement  was  consider- 
ably strengthened  by  the  arrangement  of  October  11, 
1898,  between  the  Eastern  Dynamite  Company  and 
the  Hancock  Chemical  Company,  whereby  the  latter 
agreed  to  turn  over  its  entire  output  —  except  an 
amount  sufficient  to  supply  the  needs  of  certain  specified 
mining  companies,  —  hi  consideration  of  $18,000  a  year, 
for  the  privilege  given  of  acting  as  their  exclusive 
sales  agent,  and  a  price  for  their  powder  of  15  per  cent 
over  and  above  the  cost  of  manufacture  and  delivery. 
The  agreement  was  to  go  into  force  in  November, 
1898,  for  five  years,  and  as  usual  the  "  year  to  year 

1  Mexican  Agreement,  Gov't  Exhibit  No.  268,  Pet.  Rec.  Exhibits,  vol.  iv,  p.  2081,  ff. 

•  Ibid.,  pp.  2084-2085. 

•  Ibid.,  p.  2087. 
«  Ibid.,  p.  2097. 

•  Brief,  vol.  2,  p.  192. 


26  QUARTERLY  JOURNAL  OF  ECONOMICS 

thereafter  "  clause  was  attached.1  By  a  subsequent 
agreement  the  JLake  Superior  Powder  Company  and 
the  Aetna  Powder  Company  agreed  to  assume  the 
obligations  of  this  contract,  the  Eastern  Dynamite 
Company  failing  performance.2  A  second  supple- 
mentary agreement  between  the  Eastern  Dynamite 
Company  and  the  Aetna  and  the  Lake  Superior  Powder 
Companies  provided  that  the  two  latter  should  bear 
a  portion  of  the  expense  of  the  Eastern  Dynamite 
Company's  performance  of  its  contract  with  the 
Hancock  Chemical  Company  inasmuch  as  this  contract 
was  undertaken  for  the  benefit  of  all  the  parties.3 

The  second  period  then,  to  summarize,  saw  the 
complete  consolidation  of  the  dynamite  trade  of  the 
United  States  and  the  practical  elimination  of  com- 
petition in  that  field  as  well  as  in  the  manufacture  of 
gunpowder.  The  power  and  monopoly  of  the  com- 
bination had  been  extended  by  numerous  agreements, 
among  which  the  European  and  Mexican  may  be 
mentioned  most  prominently. 

PERIOD  III 

In  the  third  period  the  steadily  increasing  concentra- 
tion is  further  strengthened  by  the  adoption  of  a 
corporate  form  of  organization  which  placed  one 
huge  concern  at  the  head  of  the  greater  part  of  the 
explosives  business  of  the  United  States. 

Prior  to  the  year  1899,  E.  I.  du  Pont  de  Nemours 
and  Company  had  been  a  partnership,  but  hi  that 
year  it  became  a  corporation  under  the  same  name. 

1  Hancock  Agreement,  Gov't  Exhibit  No.  265,  Pet.  Rec.  Exhibits,  vol.  iv,  pp.  2074- 
2078. 

1  Supplementary  Hancock  Agreement,  Gov't  Exhibit  No.  266,  Pet.  Rec.  Exhibits, 
vol.  iv,  pp.  2078-2079. 

»  Second  Supplementary  Hancock  Agreement,  Gov't  Exhibit  No.  267,  Pet.  Rec. 
Exhibits,  vol.  iv,  pp.  2079-2080. 


THE  POWDER   TRUST,  1872-1912  27 

In  1902,  Eugene  du  Pont,  who  had  been  the  active 
manager  of  the  partnership  and  later  of  the  corporation, 
died.  None  of  the  other  stockholders  were  willing 
to  assume  the  management  of  the  corporation  and 
as  a  result  Alfred  du  Pont  requested  the  cooperation 
of  Pierre  S.  and  Thomas  Coleman  du  Pont,  who  had 
not  previously  been  interested  in  the  business.  Sub- 
sequently there  was  incorporated  in  1902,  in  Delaware, 
by  Thomas,  Pierre,  and  Alfred  du  Pont,  a  corporation 
known  as  the  E.  I.  du  Pont  de  Nemours  Company 
(afterwards  E.  I.  du  Pont  de  Nemours  and  Company) 
for  the  purpose  of  purchasing  the  1899  corporation. 
The  company  had  a  capital  stock  of  $20,000,000  and 
issued  $11,997,000,  of  which  the  three  du  Fonts  got 
$8,940,000  as  promoters'  profits.1  Purchase  money 
notes  were  issued  to  the  amount  of  $12,000,000,  which 
together  with  the  balance  of  the  $11,997,000  stock 
were  exchanged  for  the  properties  of  the  old  corporation 
by  the  new  1902  Delaware  corporation.2  In  order  to 
make  this  company  a  purely  holding  corporation  there 
was  organized  the  E.  I.  du  Pont  de  Nemours  and  Com- 
pany of  Pennsylvania  and  the  E.  I.  du  Pont  Company.3 
To  these  two  concerns  the  1902  Delaware  corporation 
then  transferred  all  its  physical  properties  and  assets, 
retaining  merely  the  securities  of  these  two  constituent 
companies.4 

Not  long  after  the  organization  of  the  Delaware 
corporation  (1902)  the  du  Ponts  discovered  that  the 
Laflin  and  Rand  Company  was  interested  in  sub- 

1  They  subscribed  in  cash  $3000,  and  in  return  secured  the  control  of  the  company 
for  when  the  Government  suit  was  brought  in  1907,  only  a  little  over  $12,000,000  of 
stock  was  outstanding. 

2  Brief  for  the  United  States,  vol.  1,  pp.  69-71.     Resolutions  of  Directors,  Gov't 
Exhibit  No.  168,  Pet.  Rec.  Exhibits,  vol.  iv,  pp.  1792-1793.    Pleadings,  Answer  of  H.  A. 
du  Pont,  p.  313. 

»  Brief,  vol.  1,  p.  72. 

*  The  capitalization  of  these  companies  was  $20,000  and  $10,000  respectively. 


28  QUARTERLY  JOURNAL  OF  ECONOMICS 

stantially  the  greater  part  of  the  same  concerns  as  they 
themselves  and  also  that  the  combined  holdings  of 
the  du  Pont  and  Laflin  and  Rand  interests  were  suffi- 
cient to  give  control  to  these  two  concerns  of  the  most 
of  the  companies  in  which  they  both  held  stock.1  The 
du  Pont  company,  moreover,  owned  no  dynamite 
plant,  altho  it  was  a  minority  holder  in  the  Eastern 
Dynamite  Company,  the  Lake  Superior  Powder  Com- 
pany, and  the  California  Powder  Works.  On  October 
1,  1902,  the  Delaware  corporation  had  minority 
holdings  in  fifteen  concerns,  a  majority  holding  in  a 
sixteenth,  a  fifty  per  cent  holding  in  a  seventeenth, 
and  owned  all  the  capital  stock  of  the  Hazard  Powder 
Company.  The  latter  company  in  turn  had  minority 
holdings  in  six  companies.  At  the  same  time  the 
Laflin  and  Rand  interests  possessed  minority  holdings 
in  thirteen  companies,  fifty  per  cent  holdings  hi  two 
companies,  and  majority  holdings  in  two  companies.2 
Of  all  the  parties  to  the  powder  combination  on 
October  1,  1902,  only  seven  would  not  be  controlled 
by  the  1902  Delaware  corporation  if  it  could  secure 
control  of  Laflin  and  Rand.3 

The  men  at  the  head  of  Laflin  and  Rand  at  this 
tune  were  all  elderly  and  the  du  Ponts  had  no  means 
of  knowing  what  types  of  men  might  step  in  to  take 
their  places.4  As  most  of  their  own  stocks  were 
worthless  for  purposes  of  control,  except  in  conjunction 
with  Laflin  and  Rand,  the  du  Ponts  finally  determined 
to  buy  out  that  concern.  Laflin  and  Rand,  however, 
at  first  demanded  $700  a  share  for  their  stock;  but  as 

1  Testimony  of  Pierre  S.  du  Pont,  Def.  Rec.  Testimony,  vol.  i,  pp.  489-490. 
»  Ibid.,  pp.  485-489  and  532-533. 
»  Brief,  vol.  2,  p.  242. 

«  Ibid.,  footnote  105,  pp.  490-491  and  testimony  of  J.  A.  Haskell,  Def.  Rec. 
Testimony,  vol.  ii,  pp.  1083-1084. 


THE  POWDER   TRUST,  1872-1912  29 

the  du  Fonts  did  not  feel  able  to  pay  so  large  a  sum 
in  cash,  matters  were  finally  compromised.  The 
entire  capital  of  the  Laflin  and  Rand  Company  was 
10,000  shares  of  which  certain  parties  held  a  majority 
block  of  5,524  shares.  Ten  of  the  parties  l  who  held 
the  5,524  shares  also  held  950  shares  of  the  stock  of 
the  Moosic  Powder  Company.  The  same  ten  parties 
held  3,380  shares  of  the  majority  block  of  the  5,524 
shares  in  the  Laflin  and  Rand  Company  and  they 
refused  to  sell  the  same  unless  they  could  also  sell 
their  holdings  of  Moosic  stock  at  a  certain  price.2 
This  demand  was  finally  agreed  to  and  thereupon 
Thomas  Coleman  du  Pont  secured  an  option  upon  the 
said  3,380  shares,  the  9503  shares  of  Moosic  stock 
and  also  upon  the  balance  of  the  5,524  shares.4 

As  the  next  step  in  the  process  the  Delaware  Se- 
curities Company  was  organized  to  purchase  and  hold 
certain  stock  to  be  purchased  from  Laflin  and  Rand.6 
It  began  business  with  a  paid-up  cash  capital  of  $2,000, 
and  an  authorized  capital  stock  of  $4,000,000.6  On 
September  23d,  the  Board  of  Directors  passed  a  resolu- 
tion for  the  acquirement  of  5,524  shares  of  the  optioned 
stock  of  the  Laflin  and  Rand  Company  to  be  paid 
for  together  with  the  services  of  T.  C.  du  Pont  by 
$3,998,000  in  the  stock  of  and  $2,209,600  in  the  bonds 
of  the  Delaware  Securities  Company.7  This  resolu- 
tion of  the  Board  was  carried  out,  except  that  a  small 

>  Gov't  Exhibit  Nos.  230  and  231,  Pet.  Rec.  Exhibits,  vol.  iv,  pp.  1979-1980. 

*  Cf.  Ans.  of  the  Del.  Investment  Co.,  Pleadings,  p.  220. 

»  Resolutions  of  the  Directors  of  the  Del.  Investment  Co.,  Gov't  Exhibit  No.  166, 
Pet.  Rec.  Exhibits,  vol.  iv,  pp.  1788,  ff. 

<  Resolutions  of  the  Directors  of  the  Del.  Securities  Co.,  ibid.,  pp.  1756,  ff. 
8  Answer  of  the  Del.  Securities  Co.,  Pleadings,  p.  225. 

•  Certificate  of  Incorporation  of  Del.  Securities  Co.,  Gov't  Exhibit  No.  144,  Pet. 
Rec.  Exhibits,  vol.  iv,  p.  1742. 

'  Cf .  note  3. 


30  QUARTERLY  JOURNAL  OF  ECONOMICS 

portion  of  the  stock  was  utilized  in  partial  exchange 
for  the  shares  of  Laflin  and  Rand  outside  of  the  5,524 
purchased  under  the  terms  of  the  option.1 

In  the  same  month  the  Delaware  Investment  Com- 
pany was  organized  for  the  purpose  of  exercising  the 
option  held  by  T.  C.  du  Pont  for  950  shares  of  the 
stock  of  the  Moosic  Powder  Company.  It  had,  like 
the  Delaware  Securities  Company,  a  paid-up  capital 
of  $2000.  Its  authorized  issue  was  $2,500,000.2  On 
September  23d,  the  Board  of  Directors  authorized  the 
purchase  of  the  Moosic  stock  to  be  paid  for,  together 
with  the  service  of  T.  C.  du  Pont  in  $2,498,000  full- 
paid  non-assessable  capital  stock  and  $2,500,000 
bonds.3  Now  both  the  Moosic  and  Laflin  and  Rand 
stocks  were  purchased  with  the  bonds  of  these  two 
companies  plus  a  stock  bonus.  Consequently  in 
consideration  of  the  services  of  Thomas  Coleman  du 
Pont  in  securing  the  consent  of  certain  stockholders 
of  Laflin  and  Rand  to  the  sale  of  their  property  and 
that  of  the  Moosic  Company  the  two  Delaware  sub- 
sidiaries, i.  e.,  the  Delaware  Securities  Company  and 
Delaware  Investment  Company,  transferred  to  the 
1902  Delaware  corporation,  i.  e.,  E.  I.  du  Pont  de 
Nemours  and  Company  a  majority  of  their  issues 
of  stock  of  $3,998,000  and  $2,498,000  respectively.4 
In  this  manner  the  1902  Delaware  corporation  secured 
complete  control  of  all  but  ten  of  the  companies  in 
the  powder  and  explosive  business  that  had  heretofore 
been  members  of  the  combination. 

i  Brief,  vol.  2,  p.  247. 

1  Certificate  of  Incorporation  of  the  Del.  Investment  Co.,  Gov't  Exhibit  No.  145, 
Pet.  Rec.  Exhibits,  vol.  iv,  p.  1747. 

»  Cf.,  p.  472,  note  4. 

'  The  total  actual  payment  for  the  entire  Laflin  and  Rand  property  including 
minority  holdings  was  about  $4,000,000  in  bonds  and  a  stock  bonus  of  20  per  cent;  for 
the  950  shares  of  Moosic  about  $2,350,000  in  bonds  and  a  25  per  cent  stock  bonus. 
Cf.  Testimony  of  Pierre  S.  du  Pont,  Def.  Rec.  Testimony,  vol.  i,  pp.  519-522. 


THE  POWDER   TRUST,  1872-1912  31 

These  ten  concerns  were  as  follows :  — 

Austin  Powder  Company;  California  Powder  Works; 
American  Powder  Company;  Miami  Powder  Company; 
King  Powder  Company;  Aetna  Powder  Company; 
Giant  Powder  Company;  Judson  Dynamite  and  Pow- 
der Company;  Hancock  Chemical  Company;  Equi- 
table Powder  Manufacturing  Company.1 

It  will,  however,  be  recalled  that  of  these  concerns 
both  the  Judson  and  the  Giant  Companies  had  been 
parties  to  the  European  Agreement; 2  that  the  Eastern 
Dynamite  Company  had  working  agreements  with 
the  Hancock  Chemical  Company  which  the  Aetna 
had  bound  itself  to  observe,3  and  that  the  Aetna  and 
Eastern  Dynamite  Company  had  also  entered  into 
an  agreement  with  each  other  known  as  the  "  Memo- 
randum of  Understanding";4  and  finally  that  by 
another  agreement  the  output  of  the  King  Company 
for  a  period  of  twenty-five  years  from  1901  was  under 
the  control  of  the  1899  Delaware  corporation  which 
had  been  reincorporated  as  the  1902  Delaware  corpora- 
dion  and  Laflin  and  Rand.8  It  is  also  to  be  noted 
that  the  Miami  Powder  Company  and  American 
Powder  Mills  were  at  that  time  and  continued  to  be 
down  to  1904,  partners  to  the  Fundamental  Agree- 
ment of  1896,  and  to  the  European  Agreement  down 
to  the  date  of  its  discontinuance  in  the  fall  of  1906.6 

i  The  Austin  Powder  Co.,  the  Cal.  Powder  Works,  and  the  Equitable  Powder  Mfg. 
Co.  have  been  included  in  this  list  because  they  were  not  absolutely  controlled.  It 
should  be  borne  in  mind,  however,  that  the  1902  Delaware  corporation  acquired, 
through  Laflin  and  Rand,  and  the  1899  Delaware  corporation  32  per  cent  of  the  stock 
of  the  first,  20  per  cent  of  that  of  the  second,  and  49  per  cent  of  that  of  the  third. 

1  Supra,  p.  466,  note  2. 
»  Supra,  p.  469,  note  1. 
«  Supra,  p.  465,  note  1. 

*  Supra,  p.  463,  note  4. 

•  Brief,  vol.  1,  p.  79. 


32  QUARTERLY  JOURNAL  OF  ECONOMICS 

Between  October,  1902,  and  July  28,  1903,  the  1902 
Delaware  corporation  further  acquired  stock  in  five 
companies l  in  which  it  had  not  hitherto  had  any 
direct  interest  and  also  made  further  acquisitions  in 
the  stock  of  its  own  subsidiaries. 

In  Pennsylvania  there  were  operating  besides  E.  I. 
du  Pont  de  Nemours  and  Company,  of  Pennsylvania, 
four  other  companies:  the  Moosic  Powder  Company, 
in  which  the  1902  Delaware  corporation  had  acquired 
a  31.66  per  cent  interest  at  the  time  of  the  Laflin  and 
Rand  transaction;  the  Consumers  Powder  Company 
of  whose  stock  it  held  25.23  per  cent;  the  Enterprise 
Manufacturing  Company  in  which  it  owned  a  35.12 
per  cent  interest  and  the  Oliver  Powder  Company  of 
whose  stock  it  was  sole  owner.2  On  September  11, 
1903,  all  these  companies  were  merged  in  E.  I.  du 
Pont  de  Nemours  and  Company  of  Pennsylvania,  a 
corporation  with  a  capital  stock  of  $1,275,000,  7  per 
cent  preferred,  and  $725,000  common.3 

On  May  13,  1903,  the  E.  I.  du  Pont  de  Nemours 
Powder  Company  was  organized  under  the  laws  of 
New  Jersey  with  a  capital  stock  of  $50,000,000  equally 
divided  between  common  and  preferred.4  To  the 
1902  Delaware  corporation  it  issued  $15,600,000  pre- 
ferred and  $13,600,000  common  (a  majority  in  both 
classes)  in  consideration  of  the  equity  which  the  1902 
Delaware  corporation  held  in  all  the  stocks  which  it 

1  Twenty-five  per  cent  of  the  stock  of  the  Ferndale  Powder  Co. ;  75  per  cent  of  that 
the  Conenaugh  Powder  Company;  39  per  cent  of  the  Judson  Dynamite  and  Powder 
Company;  50  per  cent  of  the  Shenandoah,  and  32.37  per  cent  of  the  stock  of  the  Globe 
Powder  Company. 

*  Gov't  Exhibit  No.  178,  Pet.  Rec.  Exhibits,  vol.  iv,  p.  1805-1806.  Answer  of  E.  I. 
du  Pont  de  Nemours  and  Co.,  Pleadings,  p.  135. 

»  Agreement  for  Merger,  Gov't  Exhibit  No.  255,  Pet.  Rec.  Exhibits,  vol.  iv,  p. 
2029  ff . 

«  Certificate  of  Incorporation,  Gov't  Exhibit  No.  71,  Pet.  Rec.  Exhibits,  vol.  i,  p. 
377  ff. 


THE  POWDER  TRUST,  1872-1912  33 

controlled.1  The  New  Jersey  company  further  guaran- 
teed principal  and  interest  of  the  obligations  of  the 
1902  Delaware  corporation  incurred  in  the  purchase 
of  the  properties  of  the  1899  Delaware  corporation.2 

Further  combination  followed  swiftly.  The  New 
Jersey  company  next  acquired  16,835  shares  in  the 
California  Powder  Works  hi  addition  to  twenty  per 
cent  of  its  stock  already  held,3  thereby  securing  control 
of  the  majority  thereof.  The  California  Investment 
Company  was  then  organized  by  the  1902  Delaware 
corporation  and  T.  C.  and  P.  S.  du  Pont  then  caused 
it  to  issue  its  bonds  for  practically  all  of  the  capital 
stock  of  the  Judson  Dynamite  and  Powder  Company.4 
This  left  uncontrolled  by  the  combination  only  three 
companies,  which  had  been  parties  to  the  agreement 
of  1896.  These  three  concerns  on  July  1,  1904,  entered 
into  an  agreement  with  the  combination  to  continue 
until  June  30,  1905,  and  thereafter  unless  three  months' 
notice  in  writing  of  the  discontinuance  of  said  agree- 
ment were  served.5  The  terms  were  practically  the 
same  as  those  of  the  Understanding  of  1896 8,  and 
the  Dynamite  Agreement  of  1895.7  In  March,  1905, 
the  agreement  was  discontinued  by  the  action  of  the 
Aetna  and  the  Miami  companies.8 

1  Answer  E.  I.  du  Pont  de  Nemours  &  Co.,  Pleadings,  pp.  124-125  and  Gov't  Exhibit 
No.  178,  Pet.  Rec.  Exhibits,  vol.  iv,  p.  1803,  ff. 

»  Brief,  vol.  2,  pp.  285-286.  By  this  series  of  operations  the  1903  N.  J.  Co.,  acquired 
control  of  all  the  capital  stocks  formerly  held  by  the  1902  Delaware  corporation,  the 
Hazard  Powder  Company  and  subsidiaries,  Laflin  and  Rand  and  controlled  companies 
and  the  Eastern  Dynamite  and  controlled  companies. 

»  See  p.  476,  note  1. 

«  Answer  E.  I.  du  Pont  de  Nemours  Co.,  Pleadings,  p.  140. 

•  The  Sullivan  Agreement,  Gov't  Exhibit  No.  237,  Pet.  Rec.  Exhibits,  vol.  iv,  p. 
1995  ff. 

•  Supra,  p.  456,  note  6. 
T  Supra,  pp.  466-467. 

8  Brief,  vol.  2,  p.  292.  It  was  claimed  that  the  trade  of  those  withdrawing,  however, 
was  respected  by  the  combination,  more  especially  because  it  was  so  insignificant. 
Testimony  E.  C.  Ferriday,  Def.  Rec.  Testimony,  vol.  i,  pp.  48-53. 


34  QUARTERLY  JOURNAL  OF  ECONOMICS 

On  July  1,  1903,  a  sales  board  was  organized  and  a 
complicated  system  of  salesmanship  put  in  force  by 
the  combination  with  a  system  of  reports  to  the  "  Trade 
Record  Bureau  "  at  Wilmington,  Delaware.  In  further 
pursuance  of  the  combination  49,950  shares  of  the 
California  Vigorit  Powder  Company  were  purchased 
and  between  August,  1903,  and  May  8,  1909,  all  the 
capital  stock  of  the  Metropolitan  Powder  Company 
was  also  acquired  by  the  combination.1 

In  1903,  the  American  E.  C.  &  Schultze  Gunpowder 
Company,  a  corporation  of  Great  Britain,  commenced 
to  compete  with  the  combination;  but  in  the  same 
year  it  transferred  its  properties  and  business  to  the 
E.  I.  du  Pont  Company,  a  subsidiary  of  the  New 
Jersey  company  for  a N  period  of  ninety-nine  years  in 
return  for  a  yearly  rental  of  £3,750.2  In  the  same 
year  the  International  Smokeless  Powder  and  Chemi- 
cal Company  began  operating  a  plant  hi  the  state  of 
New  Jersey  where  it  manufactured  Government 
Ordnance  Powder  for  sale  to  the  army  and  navy  of 
the  Government  of  the  United  States.  To  secure 
control  of  this  corporation  the  du  Pont  International 
Powder  Company  was  organized  hi  Delaware 3  with  a 
capital  stock  of  $5,000,000  preferred  and  $5,000,000 
common.  It  issued  $10,000,000  of  its  bonds  and  a 
large  share  of  its  preferred  stock  for  a  majority  of  the 
capital  stock  of  the  International  Smokeless  Powder 
and  Chemical  Company.4  From  time  to  time,  the 
stocks  of  other  competing  companies  were  also  ac- 
quired. 

1  Resolution  of  Directors.  Gov't  Exhibit  No.  188,  Pet.  Rec.  Exhibits,  vol.  iv,  pp. 
1833-1834  and  vol.  iii,  p.  1697. 

*  Indenture.  Gov't  Exhibit  No.  307.  Pet.  Rec.  Exhibits,  vol.  v,  pp.  2359-2374. 
Cf.,  especially  pp.  2359  and  2368. 

3  Certificate  of  Incorporation,  Gov't  Exhibit  No.  76.  Pet.  Rec.  Exhibits,  vol.  i, 
pp.  450,  ff. 

«  Answer  of  the  E.  I.  du  Pont  de  Nemours  and  Co.,  Pleadings,  pp.  145-147. 


THE  POWDER   TRUST,  1872-1912 


35 


From  this  time  to  the  bringing  of  suit  in  1907  by 
the  Government,  the  combination  continued  to  operate 
substantially  as  before.  Competition,  it  is  true, 
was  not  eliminated,  but  was  none  the  less  reduced  to  a 
comparatively  small  portion  of  the  trade,  as  is  shown 
by  the  following  table:  — 

PERCENTAGES  SOLD  BY  COMPANIES  CONTROLLED  BY 
E.  I.  DU  PONT  DE  NEMOURS  POWDER  COMPANY 


Black 

Saltpeter 

Black 

Smokeless 

Year. 

Blasting 
Powder 

Blasting 
Powder 

Dynamite 

Sporting 
Powder 

Sporting 
Powder 

Gov. 
Ordnance 

1905 

64.6 

80 

72.5 

75.4 

70.5 

All 

1906 

63.4 

69.5 

73 

72.6 

61.3 

« 

1907 

64 

72 

71.5 

73.6 

64 

ti 

In  1907,  the  habit  of  cutting  prices  was  discontinued. 
In  the  latter  part  of  that  year  the  first  printed  schedule 
of  prices  was  put  out  and  the  sales  prices  were  sub- 
sequently held  very  close  to  these  lists  with  little  or 
no  deviation  except  in  the  case  of  large  contracts.1 

In  this  connection  a  word  ought  to  be  said  in  regard 
to  prices.  At  the  very  outset  prices  were  fixed,  im- 
mediately after  the  organization  of  the  Gunpowder 
Trade  Association.  It  has  already  been  shown  that 
increases  in  prices  were  made  subsequent  to  the  agree- 
ments of  both  1886  and  1896.  There  is  ample  testi- 
mony also  to  show  that  prices  were  raised  after  the 
acquisition  of  the  Laflin  and  Rand  interests  in  1902, 
again  between  1902  and  1904,  and  also  by  the  sales 
board  in  1907.  Unfortunately  the  data  are  not  suffi- 
cient to  permit  the  preparation  of  a  table  showing 
these  various  price  changes.  The  reasons  that  make 
this  a  practical  impossibility  are  two.  The  first  is 

1  Testimony  of  G.  F.  Hamlin,  Charles  W.  Phellis,  F.  C.  Peters,  F.  W.  Stark,  and 
others.  Def.  Rec.  Testimony,  vol.  i,  pp.  60-61,  97,  185-186,  188,  202,  228-229. 


36  QUARTERLY  JOURNAL  OF  ECONOMICS 

that,  as  noted  in  the  preceding  paragraph,  a  printed 
schedule  of  prices  was  not  published  until  1907.  Prior 
to  that  date  prices  were  fixed  and  altered  at  the  meet- 
ings of  the  various  boards  and  committees,  and  are 
to  be  followed  only  in  the  minutes  of  these  price- 
making  organs.  In  the  second  place,  prices  in  the 
powder  trade,  as  in  the  oil  business,  have  been  largely 
local.  Between  various  parts  of  the  country  there 
have  been  wide  discrepancies.  The  general  policy 
in  prices  appears  to  have  been  to  charge  what  the 
traffic  would  bear.  It  should  be  borne  in  mind,  how- 
ever, that  tho  the  policy  of  the  powder  combination 
has  been  to  this  extent  analogous  to  that  of  the  Stan- 
dard Oil  Company,  the  former  has  been  much  more 
limited  than  the  latter  by  the  factor  of  potential 
competition.  The  manufacture  of  powder  does  not 
require  a  very  great  amount  of  capital  and  high  profits 
appear  to  call  potential  competition  into  being.  For 
this  reason  it  has  been  impossible  for  the  Powder 
Trust,  until  recently,  either  to  maintain  fixity  in 
prices,  or  to  raise  them  to  such  a  height  as  might 
have  been  the  case  under  other  conditions.  Yet 
it  would  be  entirely  unsafe  to  conclude  either  that  the 
profits  on  powder  have  not  been  excessive  or  that 
the  high  profits  have  resulted  from  other  causes  than 
the  large  degree  of  control  exercised  by  the  combina- 
tion. 

Decidedly  the  most  interesting  feature  of  the  com- 
bination after  the  formation  of  the  1902  and  1903 
corporations  was  the  policy  pursued  with  regard  to 
subsidiary  companies.  The  1903  corporation  and  the 
Eastern  Dynamite  Company  had  up  to  1907  acquired 
the  stocks  of  more  than  one  hundred  corporations. 
In  April,  1904,  the  dissolution  of  these  companies 
was  begun  and  hi  that  year  and  1905,  a  large  portion 


THE  POWDER  TRUST,  1872-1912  37 

of  them  were  dissolved.  By  1907,  sixty-four  of  the 
subsidiary  corporations  had  passed  out  of  existence.1 

In  a  sense  this  is  a  comparatively  new  and  original 
method  of  procedure.  The  du  Pont  Company  has 
been  the  only  industrial  combination  that  has  resorted 
to  such  a  process  upon  an  extended  scale.  The  ulti- 
mate object  of  this  policy  was  to  create  a  single  huge 
concern  hi  the  control  of  the  powder  trade  and  to 
vest  absolutely  therein  the  ownership  of  all  the  plants 
and  factories  which  had  formerly  belonged  to  the 
various  subsidiary  companies.  It  was  designed  also, 
as  soon  as  possible,  to  discontinue  the  Laflin  and 
Rand  and  the  Hazard  Powder  Companies,  the  Eastern 
Dynamite  Company,  and  the  Delaware  Securities 
and  Delaware  Investment  Companies.2  Had  the  Gov- 
ernment's suit  not  intervened  this  result  would  have 
probably  been  attained  and  we  should  have  had  a 
unique  form  of  industrial  combination.  The  property 
of  the  dissolved  companies  was  purchased  outright, 
and  the  title  probably  cannot  be  impaired  by  the 
courts.  The  problem  of  dissolution  therefore  that 
the  courts  have  to  deal  with  is  one  that  presents 
apparently  a  greater  degree  of  difficulty  than  was 
involved  in  either  the  Standard  Oil  or  Tobacco  de- 
cisions. As  the  Court  remarks:  "  The  dissolution 
of  more  than  sixty  corporations  since  the  advent  of 
the  new  management  in  1902,  and  the  consequent 
impossibility  of  restoring  original  conditions  in  the 
explosives  trade,  narrows  the  field  of  operation  of  any 
decree  we  may  make.'^ 3 

The  Circuit  Court  adjudged  the  combinations  in 
restraint  of  commerce  in  explosives  and  with  attempting 

i  Cf.  List  of  Companies  "  Opinion  of  the  Court  and  Interlocutory  Decree  ",  pp.  31- 
32. 

*  Ibid.,  pp.  31-32. 

»  Interlocutory  Decree,  pp.  43-44. 


38  QUARTERLY  JOURNAL  OF  ECONOMICS 

to  monopolize  and  monopolizing  a  part  of  such  com- 
merce. They  were  enjoined  and  ordered  to  dissolve. 
The  decree  was  made  interlocutory  and  the  defendants 
were  to  be  heard  again,1  as  to  the  nature  of  the  injunc- 
tion and  as  to  any  plan  of  dissolution  which  they 
might  have  to  suggest.  It  can  hardly  be  doubted 
that  such  plan  will  be  of  great  interest,  owing  to  the 
peculiar  policy  pursued  by  the  combination  within 
the  last  few  years,  and  the  rapid  approach  that  has 
been  made  to  a  great  single  monopolistic  corporation. 
At  the  date  this  article  goes  to  press,  however,  the 
dissolution  plan  has  not  been  decided  upon.  At  a 
hearing  in  the  early  part  of  March,  lawyers  and  judges 
failed  to  reach  an  agreement. 

WILLIAM  S.  STEVENS. 

UNIVEBSITY  OF  PENNSYLVANIA. 


1  Originally  the  court  set  the  hearing  for  October  16, 1911,  but  it  has  been  postponed 
from  time  to  time. 


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